Important things to consider before transferring home loan

Last Updated : July 28, 2016, 6:51 a.m.

You can transfer your higher rate home loan to a lower rate home loan as the home loan offered by most of the banks is much lower compared to five years back rates. Most of the banks and financial firms have reduced their rate of interest on home loan as per the instructions of the RBI given on time-to-time. You can go for loan transfer any day if you think that your present bank is charging you higher rate of interest and you are getting a lower rate of interest if you transfer your loan to any of the bank. Most of us really do get tempted with the such kinds of offers where banks and financial firms suggest us to change their home loan to a lower rate of interest and save money over the period of time. This is true that if you will avail a loan at lower rate of interest you will save a good amount of money over the period of time. But, have you really calculated your benefits or savings? Have you evaluated all the options in advance? Have you compared the new offer with your existing home loan terms? If your answer is NO, then you should surely do some research work and spend some time before going for loan transfer to make it a good deal for you. Here are some important things which you should consider before going for home loan transfer to a new bank or financial firm.

Calculate the total outgo as interest: This is important that you should always calculate the total total outgo as interest you are going to pay during the tenure of the loan. You should always consider the point that if you are going to avail the loan for a longer tenure to get the lower EMI you will pay more amount to bank in form of interest. If you are paying higher EMIs to your present bank with the same tenure then you should definitely change your lender. If you have no financial crunch and you can easily manage paying higher EMIs, then you should pay the higher EMIs to close the loan soon as it will help in paying less amount as loan interest. So, in such scenario paying for lower EMI with increased burden of interest is not a good move.

Calculate the processing fee and other charges: While transferring your loan you should also consider a few things in mind such as processing fee for the new loan, stamp duly, legal charges, valuation fee, technical charges and other allied charges that your new bank would charge and compared it with the benefit in terms of reduced interest rates. After doing all this maths, campare your benefits or any loss with the loan transfer. For some banks processing fee is a percentage of the total loan amount, while others, it depends upon whether you are salaried or self-employed. Besides, there are banks which charge a fixed amount as processing fee to all the customers. If the bank is charging it on the basis of outstanding amount, calculate it in rupee to find out how much amount are you going to save? Also, find out about any other cost of closure of the account if it finds out that your is a case of loan transfer. Check and calculate all the fee and charges imposed by the bank on loan transfer.

Collateral to outstanding ratio of loan: If you have already paid the loan for more than seven or eight years and paid a huge amount of loan, then it is not a wise decision to give the complete original collateral to your new lender. Why would you want to give a security which is double the amount of your loan outstanding? You would use it to take a separate loan instead, if the such situation comes. Here, the best idea is to offer your bank a lesser amount of collateral. And if the bank still insist on the same, negotiate with the bank to get a lower interest rate further.

Terms and conditions of the new bank: Before going for home loan transfer to the new bank, try to know more about the terms and conditions of the new bank. What are the terms and conditions of the loan transfer process? Try to find out is the bank imposing any forced product on the loan transfer? Is it asking you to purchase a home insurance or life insurance policy along with your loan transfer? Even some banks ask you to deposit a certain amount in the bank or open a fixed deposit with a certain amount. Therefore, it is really necessary to read all the terms and conditions of the new loan before you jump into it.

Other attachment frills on the offer

Many banks and financial firms lure customers by giving them various offers with loan. They try to lure customers by giving them offers such as free credit card and personal accident insurance with the loan. Before feeling flattered with all these offers and jumping into the soup, try to find out whether you really need them and ask for more information about terms and conditions related to these add-on products linked with loan. Also find out whether it will increase your loan cost or not.

Take the final decision

Do not just switch your loan for sake of lower rate of interest that is only marginally better. After all banks are into the business of lending. Why would one bank want to give you lower rate of interest or lose profit when other are earning more in the market? So, evaluate all the points well, is it really in your interest and ask more questions and consider all the issues before availing the loan.